The Banking Executive Magazine - February 2026 Issue 2

Banking on Nonbanks Over the past decade and a half, the architecture of global finance has un- dergone a quiet but consequential shift. While banks remain at the cen- ter of credit intermediation, an ex- panding constellation of nonbank financial institutions (NBFIs)—in- cluding broker-dealers, investment funds, asset managers, pension funds, insurers, and credit funds— has assumed a larger role in funding the real economy. This development is neither acciden- tal nor incidental. It is closely linked to the post-2008 regulatory land- scape, which strengthened capital, liquidity, and supervisory standards for banks. As prudential frameworks tightened, particularly through macroprudential instruments aimed at containing systemic risk, credit in- termediation began to extend be- yond the traditional banking perimeter. By 2024, nonbanks accounted for 51% of global financial assets, up from 43% in 2008. In the corporate syndicated loan market, nonbanks originated approximately half of all loans to nonfinancial corporations— compared with roughly 30% at the height of the Global Financial Crisis. The implication is clear: financial in- termediation has not contracted in response to regulatory tightening; rather, it has been reallocated. For policymakers and financial lead- ers across the Arab region, this evo- lution deserves close attention. THE REGULATORY PARADOX: CONTAINMENT AND REALLOCATION Macroprudential policy was de- signed to strengthen financial resilience. Tools such as counter- cyclical capital buffers, sectoral risk weights, stress testing requirements, reserve mandates, and borrower- based restrictions have sought to temper credit excesses and build shock absorbers within the banking system. However, recent empirical research using a comprehensive dataset cov- ering 27 countries from 2000 to 2024 reveals an important nuance: when macroprudential constraints tighten for bank subsidiaries within financial groups, lending does not simply decline. Instead, a substantial portion of credit migrates to affiliated nonbank subsidiaries within the same corporate group. On average, a typical macropruden- tial tightening reduces bank sub- sidiary lending by approximately 1%. Yet nonbank subsidiaries within the same group increase their lend- ing by around 2% relative to bank entities. In practical terms, for every dollar of bank lending curtailed due to regulatory tightening, more than fifty cents re-emerges through affili- ated nonbank channels. This is not regulatory evasion in the traditional sense. Rather, it reflects the growing structural integration of banks and nonbanks within diversi- fied financial groups. Modern bank- ing organizations frequently operate through complex networks of bank subsidiaries, broker-dealers, asset management arms, and other finan- cial vehicles. Internal capital markets allow these groups to allocate fund- ing where regulatory constraints are less binding. The result is a partial offset of macro- ISSUE 206 FEBRUARY 2026 the BANKING EXECUTIVE 37